Rural retreat still costs £24,000 more than city home

The recent wave of first-time buyers into Britain's property market is helping to close the house price gap between urban and rural properties, a study has suggested.

But people buying a home in a rural retreat still pay nearly £24,000 more typically than those purchasing a property in a city, Halifax found.

In the past four years, the gap has been narrowing, with the average price of a home in an urban area rising at five times the rate of one in the countryside, at 10% compared with just 2%.

Halifax said this could reflect a recent increase in first-time buyers coming into the market to snap up properties. First-time buyers account for two-fifths (40%) of house purchases using a mortgage in rural areas, but in towns and cities they make up more than half (52%) of such transactions.

The Government has introduced a string of schemes to improve mortgage access. A mortgage price war was sparked after its Funding for Lending scheme was introduced last year and from this month people with deposits as low as 5% have been able to apply for state-backed mortgages under the Government's flagship Help to Buy scheme.

Lenders have been handing out more mortgages in recent months to first-time buyers than in any other period since the credit crunch started.

Halifax found that a house in a rural area costs £206,423 on average, which is 13% more than the typical cost of a property in an urban area at £182,710.

While a "rural premium" exists in every region across Britain, it ranges from £86,218 in the South East to £11,570 in the North East.

In percentage terms, people living in the West Midlands pay the biggest premium to live in a rural area, at 59%, while those living in the North East pay the least at 9%.

The average house price in the countryside is equivalent to 6.3 times gross annual average earnings, while in urban areas it is lower and therefore potentially more affordable, at 4.9.

Halifax found only five rural areas in Britain where house prices cost less than four times local annual earnings typically, which is the long-term average.

Copeland in Cumbria was named as the most affordable rural area, where the house price-to-earnings ratio was 2.7. This was followed by the Scottish regions of Stirling, where the ratio is 3.4, East Ayrshire where it is 3.5 and the Western Isles, with a ratio of 3.7. Pendle in Lancashire completed the list, with a ratio of 3.9.

At the other end of the scale, the Cotswolds were the least affordable area in rural Britain, with average house prices standing at £318,128 which is 9.4 times the local average income.

First-time buyers account for less than one quarter (23%) of house purchases in the Cotswolds, according to Halifax, marking the smallest proportion in Britain, while Copeland was found to have the biggest percentage share of people taking their first step on the ladder, at 58%.

Martin Ellis, housing economist at Halifax, said: "There is a significant premium on property in the countryside across Great Britain.

"Country living remains a widespread aspiration, but relatively high prices put rural homes out of the reach for many. Potential first-time buyers are particularly affected by high property prices, and consequently they account for a smaller proportion of homebuyers in the countryside than in urban areas."

Halifax used official figures and its own house price database to make its findings.

Here are average house prices by region, with the typical price of a rural property in 2013 followed by that of an urban property, and the percentage difference or "premium" in monetary and percentage terms:

:: North East, £137,010, £125,440, £11,570, 9%

:: North West, £ 200,997, £131,938, £69,059, 52%

:: Yorkshire and The Humber, £ 175,466, £127,452, £48,014, 38%

:: East Midlands, £ 179,692, £134,412, £45,280, 34%

:: West Midlands, £ 231,996, £145,801, £86,196, 59%

:: East of England, £ 235,876, £204,863, £31,013, 15%

:: South East, £318,185, £231,968, £86,218, 37%

:: South West, £232,630, £183,048, £49,583, 27%

:: Scotland, £ 160,374, £137,352, £23,022, 17%

:: Wales, £ 154,270, £131,184, £23,086, 18%

:: London (urban only), £ 316,293 n/a

:: Britain, £ 206,423, £182,710, £23,712

Supply of homes in regional housing markets

To fully understand the nature of the UK property market, it is important to recognise that there are significant variations in supply dynamics across mainland UK.

In fact, it should come as no surprise that the balance of supply and demand for property in each region is fundamentally correlated with price performance.

Although the regional disparities in price recovery have been widely reported, regional supply dynamics, whilst equally important, have not garnered sufficient attention. 

The current volume of vendors entering the market (around 100,000 per month across the UK) is less than half of what it was during the property boom year of 2007. It may be argued that restricted supply of property for sale has been instrumental in both preventing a greater crash and facilitating a much more rapid recovery. The same thesis applies at a regional level.

The consequences of low supply and high demand are all too apparent in the overheating London property market, where supply is down 19% and prices are up 10.5% (year-on-year). 

Contrastingly, the North East is the real contrarian in the country's supply crisis. In this region, the supply of new and resale property has actually risen by 16% over the last 12 months while pricing is essentially stagnant (+0.5% but falling in real terms).

Clearly, in the current market, homeowners in areas where prices are growing at a reasonable rate are reluctant to sell. Concerns about the lack of suitable properties are discouraging many would-be vendors. Another considerable influence is the strong rental market. 

As sales prices continue to rise, property owners are choosing to bide their time and enjoy the high rental yields and income generated from a strong lettings market, hence the growing number of 'double renters'.

Even in London, where the average property price has risen 10.5% in the last 12 months, the strong rental market can offer landlords an average monthly rent of £2,369 for a flat and £3,636 for a house.

On the other hand, we are also witnessing increases in the number of vendors in the poorly performing northern regions. This is an alarming trend for areas such as the North East and the North West where price growth is already negligible. 

Increasing supply looks set to keep prices in such regions in check, at least for the rest of the year. Hence, in contrast to the South, the North remains, for the time being, a buyer's market.

Doug Shephard, director at Home.co.uk, commented:

"These regional supply dynamics suggest that the bipolar nature of the UK property market is only going to get worse. Starved of new and resale stock, pricing in the London and South East property markets looks set to go ballistic. 

"Prices in the capital are already increasing too fast and further restrictions in supply can only serve to make matters worse. Meanwhile, increases in supply in the sluggish northern markets can only exacerbate their problems of slow sales and price stagnation."

Northern Ireland house prices at strongest level for almost 6 years

The price balance of the latest RICS and Ulster Bank Housing Market Survey for Northern Ireland was at its highest in almost six years in June.

It is only the second time since July 2007 that the price balance - which gives an indication of whether average house prices are rising or falling – has been in positive territory.

A net balance of 21% of respondents said that prices were up in the three months to the end of June (28% saying that prices were up in the period, 65% saying that they remained the same and 7% saying they were down).

The only other positive reading since July 2007 was in March 2013, when the price balance was 9.

Surveyors were also upbeat about transactions and transaction expectations in the June survey. A net balance of 44% said that transactions rose in the April, May, June period (56% said that they were up, 33% said that they remained the same, and 11% said they were down).

With regard to the outlook for prices, 89% of respondents said that they would remain the same in the three months ahead (July, August, September), with 11% saying they would be up - giving a net balance of 11.

The net balance for transactions expectations was 67. (67% said that they would be up in the three months ahead and 33% said they would remain the same).

Tom McClelland, RICS Northern Ireland housing spokesman, said : "We expect the summer months to provide an improvement, but, more significantly, what we are seeing is an overall trend of stabilisation in the market, which we expect to continue over the year as a whole. There will be bumps along the way, but we still expect 2013 to see an overall trend of easing price falls and increasing activity. The stabilisation in prices is encouraging greater activity, albeit we are still some way off what would be considered healthy transaction volumes."

Derek Wilson, Head of Lending Products at Ulster Bank, said: "There are a number of positive indicators in the market. Ulster Bank remains strongly committed to providing mortgage lending in all sectors of the market . We have provided more than £1.5billion of mortgage lending in the Northern Ireland market since the property price peak and continue to introduce initiatives that support demand and increase choice for borrowers."

£1m plus homes holding their value

The number of prime properties on the market that have seen a reduction in their asking price has fallen to its lowest level in three years, according to research from property website PrimeLocation.com.

The proportion of prime properties (defined as those worth over £1 million) that are currently for sale and have had their asking price discounted from its original level has fallen to 18%, down from 27% one year ago and at its lowest level since summer 2010. The average price reduction on prime properties across the UK now stands at 8.7%.

The commuter town of Rickmansworth in Buckinghamshire tops the list of places where the highest proportion of million pound homes are currently being offered at less than the original asking price with almost half (48%) of prime properties reduced in order to find buyers. By contrast, only 4% of prime properties on the market in Guernsey have been reduced in price.

The smallest price reductions on £1m+ properties on offer in the market are to be found in Walton-on-Thames (4.3%) followed closely by Guildford (4.2%) showing that homeowners in these areas are currently less inclined to reduce their asking prices to attract buyers. At the other end of the scale, prime homeowners in Bath and Edinburgh are less bullish and are reducing their expectations more than anywhere else in the UK currently.  

Lawrence Hall of PrimeLocation.com, comments: “The prime property market is a law unto itself and one which has largely defied gravity in recent years, even during the recession. However, even the wealthiest areas have seen deep discounts in the past few years.  But the drop over the past 12 months in the number of prime properties with reduced asking prices has been a significant one, indicating that at the top end of the market sellers are generally feeling a lot more bullish now than they were this time last year.”